FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to .
Commission file number: 333-32245
Heartland Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)
Indiana 35-2017085
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
420 North Morton Street, P.O. Box 469, Franklin, Indiana 46131
(Address of principal executive offices)
(317)738-3915
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of November 13, 2000, the latest practicable date, 1,328,194 shares of the
Registrant's Common Stock, no par value, were issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
(Dollar amounts in thousands, except share data)
--------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,605 $ 3,598
Federal funds sold 3,484 75
-------- --------
Total cash and cash equivalents 11,089 3,673
Securities available-for-sale, at market 19,651 13,677
Loans 124,748 91,045
Allowance for loan losses (1,887) (1,365)
-------- --------
Loans, net 122,861 89,680
Premises, furniture and equipment, net 2,344 1,659
Accrued interest receivable and other assets 2,142 1,450
-------- --------
$158,087 $110,139
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 15,393 $ 8,707
Interest-bearing demand and savings deposits 42,936 29,428
Interest-bearing time deposits 71,745 50,384
-------- --------
Total deposits 130,074 88,519
Short-term borrowings 11,421 3,519
Other borrowings 3,000 6,000
Accrued interest payable and other liabilities 1,008 458
-------- --------
145,503 98,496
Shareholders' equity
Common stock, no par value: 10,000,000 shares
authorized; 1,265,000 shares issued and
outstanding 1,265 1,265
Additional paid-in capital 10,466 10,466
Retained earnings 976 105
Accumulated other comprehensive loss (123) (193)
-------- --------
12,584 11,643
-------- --------
$158,087 $110,139
======== ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months and nine months ended September 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $3,033 $1,866 $7,903 $ 4,691
Securities:
Taxable 313 182 753 511
Non-taxable 5 4 17 16
Other 47 24 148 51
------ ------ ------ ------
Total interest income 3,398 2,076 8,821 5,269
Interest expense
Deposits 1,574 915 3,990 2,378
Short-term borrowin 115 82 210 27
Other borrowings 65 246 79
------ ------ ------ ------
Total interest expense 1,754 997 4,446 2,484
------ ------ ------ ------
Net interest income 1,644 1,079 4,375 2,785
Provision for loan losses 208 115 619 513
------ ------ ------ ------
Net interest income after
provision for loan losses 1,436 964 3,756 2,272
Noninterest income
Service charges and fees 124 60 264 138
Investment commissions 42 - 207 -
------ ------ ------ ------
Total noninterest income 166 60 471 138
Noninterest expense
Salaries and employee
benefits 593 340 1,624 949
Occupancy and equipment
expenses, net 82 54 250 153
Data processing expense 125 100 327 227
Printing and supplies 34 20 94 52
Advertising 48 24 113 62
Director fees 7 7 21 21
Professional fees 38 24 108 52
Credit reports and other
loan expenses 14 10 43 36
Other 74 90 193 169
------ ------ ------ ------
Total noninterest expense 1,015 669 2,773 1,721
------ ------ ------ ------
Income before income taxes 587 355 1,454 689
Income taxes 231 - 583 -
------ ------ ------ ------
Net income $ 356 $ 355 $ 871 $ 689
====== ====== ====== ======
Basic and diluted earnings
per share $ .27 $ .27 $ .66 $ .52
====== ====== ====== ======
Comprehensive income (Note 1) $ 471 $ 392 $ 941 $ 499
====== ====== ====== ======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 2000 and 1999
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other Total
Additional Compre- Share-
Common Paid-in Retained hensive holders'
Stock Capital Earnings Loss Equity
----- ------- -------- ---- ------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1999 $ 1,265 $10,466 $ (868) $ 53 $ 10,916
Comprehensive income
Net income for nine months
ended September 30, 1999 689 689
Change in unrealized
gain on securities
available-for-sale (190) (190)
---------
Total comprehensive income 499
------- ------- ------- --------- ---------
Balance September 30, 1999 $ 1,265 $10,466 $ (179) $ (137) $ 11,415
======= ======= ======= ========= =========
Balance January 1, 2000 $ 1,265 $10,466 $ 105 $ (193) $ 11,643
Comprehensive income
Net income for nine months
ended September 30, 2000 871 871
Change in unrealized
gain on securities
available-for-sale 70 70
---------
Total comprehensive income 941
------- ------- ------- --------- ---------
Balance September 30, 2000 $ 1,265 $10,466 $ 976 $ (123) $ 12,584
======= ======= ======= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
et income $ 871 $ 689
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and accretion, net 108 62
Provision for loan losses 619 513
Change in assets and liabilities:
Accrued interest receivable and other assets (732) (486)
Accrued interest payable and other liabilities 550 345
-------- --------
Net cash from operating activities 1,416 1,123
Cash flows from investing activities
Purchase of securities available-for-sale (11,255) (4,131)
Proceeds from sales, calls and maturities of
securities available-for-sale 5,410 2,229
Loans made to customers, net of payments collected (33,800) (33,630)
Net purchases of property and equipment (812) (16)
-------- --------
Net cash from investing activities (40,457) (35,548)
Cash flows from financing activities
Net change in deposit accounts 41,555 33,646
Net change in short-term borrowings 7,902 305
Draws on other borrowings 8,000 5,000
Repayments on other borrowings (11,000) -
-------- --------
Net cash from financing activities 46,457 38,951
-------- --------
Net change in cash and cash equivalents 7,416 4,526
Cash and cash equivalents at beginning of period 3,673 3,163
-------- --------
Cash and cash equivalents at end of period $ 11,089 $ 7,689
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Income taxes 175 304
Interest 4,423 2,730
</TABLE>
See accompanying notes.
<PAGE>
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED STATEMENTS
September 30, 2000 and 1999
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The consolidated financial statements include the
accounts of Heartland Bancshares, Inc. (Heartland) and its wholly-owned
subsidiary, Heartland Community Bank (Bank), after elimination of significant
inter-company transactions and accounts.
Heartland operates primarily in the banking industry, which accounts for more
than 90% of its revenues, operating income and assets. The Bank is engaged in
the business of commercial and retail banking, with operations conducted through
its offices located in Franklin, Greenwood and Bargersville, Indiana. The
majority of the Bank's income is derived from commercial and retail business
lending activities and investments. The majority of the Bank's loans are secured
by specific items of collateral including business assets, real property and
consumer assets.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ.
Securities: Securities are classified as available for sale because they might
be sold before maturity. They are carried at fair value, with unrealized holding
gains and losses reported separately in shareholders' equity, net of tax.
Securities are written down to fair value when a decline in fair value is not
temporary. Interest and dividend income, adjusted by amortization of purchase
premium or discount, is included in earnings.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are significantly past due. Payments received on such loans are
reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on known and inherent risks in the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED STATEMENTS
September 30, 2000 and 1999
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are significantly delayed, or when it
is probable that all principal and interest amounts will not be collected
according to the original terms of the loan.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is recognized over
the estimated useful lives of the assets, principally on the straight-line
method. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable. Maintenance and repairs are expensed and
major improvements are capitalized.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Statement of Cash Flows: Cash and cash equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. Heartland reports net
cash flows for customer loan transactions, deposit transactions, and short-term
borrowings.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options. On October 20, 2000,
Heartland issued a five percent stock dividend to shareholders of record on
October 6, 2000. The result of the dividend increased outstanding common shares
from 1,265,000 to 1,328,194. All earnings per share calculations reported herein
have been restated to reflect the additional shares outstanding.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.
Industry Segment: Internal financial information is primarily reported and
aggregated in one line of business, i.e. banking.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED STATEMENTS
September 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------
NOTE 2 - GENERAL
These financial statements were prepared in accordance with the Securities and
Exchange Commission instructions for Form 10-QSB and for interim periods do not
include all of the disclosures necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. These financial statements have been
prepared on a basis consistent with the annual financial statements and include,
in the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position at the end of and for the periods presented.
NOTE 3 - PER SHARE DATA
The following illustrates the computation of basic and diluted earnings per
share for the three and nine months ended September 30, 2000 and 1999.
<TABLE>
Three Months Nine months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C>
Basic earnings per share
Net income $ 356 $ 355 $ 871 $ 689
========= ========= ========= =========
Weighted average shares
outstanding 1,328,194 1,328,194 1,328,194 1,328,194
========= ========= ========= =========
Basic earnings per share $ .27 $ .27 $ .66 $ .52
========= ========= ========= =========
Three Months Nine months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
Dilutive earnings per share
Net income $ 356 $ 355 $ 871 $ 689
========= ========= ========= =========
Weighted average shares
outstanding 1,328,194 1,328,194 1,328,194 1,328,194
Dilutive effect of assumed
exercise of stock options - - - -
--------- --------- --------- ---------
Diluted average shares
Outstanding 1,328,194 1,328,194 1,328,194 1,328,194
--------- --------- --------- ---------
Diluted earnings per share $ .27 $ .27 $ .66 $ .52
========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 2000
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the financial condition at September 30,
2000 compared to December 31, 1999 and the results of operations for the three
and nine month periods ended September 30, 2000 in comparison to the three and
nine month periods ended September 30, 1999 of Heartland Bancshares, Inc.
(Heartland).
This discussion should be read in conjunction with the interim financial
statements and related footnotes and the consolidated financial statements and
other financial data, and the Management's Discussion and Analysis of Financial
Condition and Results of Operation included in Heartland's December 31, 1999
Annual Report to Shareholders.
GENERAL
Heartland's plan of operation is centralized around the growth of Heartland
Community Bank (the Bank). The primary operation of the Bank is to accept
deposits and make loans. The operating results of Heartland are affected by
general economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions. Heartland's cost of funds is influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are influenced by consumer and commercial demand, which in turn are affected by
the interest rates at which such loans are made, general economic conditions and
the availability of funds for lending activities.
FINANCIAL CONDITION
Heartland experienced continued growth through the first nine months of 2000.
Total assets at September 30, 2000 are $158,087, an increase of $47,948 or 43.5%
from the December 31, 1999 total assets of $110,139. Gross loans were $124,748
at September 30, 2000, representing growth of $33,703, or 37.0%, from the
December 31, 1999 total of $91,045.
An increase in total deposits of $41,555 to $130,074 at September 30, 2000, or
46.9% from $88,519 at December 31, 1999 primarily funded the growth in assets.
Short-term borrowings (primarily repurchase agreements) were increased by $7,902
from $3,519 at December 31, 1999 to $11,421 at September 30, 2000. Other
borrowings consisted of $2,000 in Federal Home Loan Bank Advances and $1,000 in
borrowings from a regional bank at September 30, 2000 compared to $6,000 in
Federal Home Loan Bank Advances at December 31, 1999.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2000
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Heartland recorded net income of $356 for the three months ended September 30,
2000 compared to $355 for the three months ended September 30, 1999. Net income
for the nine months ended September 30, 2000 was $871 compared to $689 for the
nine months ended September 30, 1999. The recognition of the benefit of net
operating losses created during the start-up period resulted in no income tax
expense being recorded during the nine and three month periods ended September
30, 1999. Income before taxes for the quarter ended September 30, 2000 was $587
compared to $355 for the same period in 1999. Income before taxes for the nine
month period ended September 30, 2000 was $1,454 compared to $689 during the
same period in 1999.
The improvements to net income and net income before taxes were driven by
increased net interest income and noninterest income which offset higher
noninterest expense recorded in 2000. Net interest income for the three and nine
months ended September 30, 2000 was $1,644 and $4,375 compared to $1,079 and
$2,785 for the three and nine months ended September 30, 1999. The increase in
net interest income was primarily attributable to increased volume of interest
earning assets.
Noninterest income was $166 and $471 for the three and nine months ended
September 30, 2000. Comparatively, non-interest income was $60 and $138 for the
three and nine months ended September 30, 1999. Non-interest income increased
primarily due to commissions generated by Heartland Investment Services, a full
service brokerage department established in November 1999 along with increased
volume of deposit accounts generating service charge and fee income. The
brokerage department generates commission income from the sale of investment
products, such as stocks and mutual funds. Commissions were $42 and $207 for the
three and nine month periods ended September 30, 2000. No investment commissions
were recorded during the corresponding periods in 1999.
The provision for loan losses recorded during the three months ended September
30, 2000 was $208 compared to $115 for the three months ended September 30,
1999. Heartland recorded a provision for loan losses of $619 during the nine
months ended September 30, 2000 and $513 during the same period in 1999. Net
charge-offs during the nine months ended September 30, 2000 were $97. Management
analyzes the level of the allowance at least quarterly and records a provision
sufficient to maintain the allowance at a level commensurate with the size of
the loan portfolio and the risks identified therein. Nonperforming loans include
accruing loans that are contractually past due 90 days or more as to interest or
principal payments. Nonperforming loans totaled $175 and $137 at September 30,
2000 and December 31, 1999. Non-accrual loans include loans on which interest
recognition has been suspended because they are 90 days past due as to interest
or principal and loans where there is a question about the Bank's ability to
collect all principal and interest. Non-accrual loans totaled $1,260 at
September 30, 2000 and were comprised of $297 in residential real estate loans
and $963 in commercial loans. One non-accrual commercial loan with outstanding
balance of $666 at September 30, 2000 was fully repaid in November 2000.
Non-accrual loans totaled $138 at December 31, 1999, and were comprised entirely
of residential real estate loans.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2000
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
Salaries and benefits expense was $593 and $1,624 for the three and nine months
ended September 30, 2000 compared to $340 and $949 for the three and nine months
ended September 30, 1999. Increases in salaries and benefits expense were
primarily due to the increase in number of employees including staff for the
investment department opened in November 1999, the third banking office opened
in January 2000, the Certificate of Deposit Program also opened in January 2000
and the fourth banking office opened in August 2000.
Net occupancy and equipment expenses of $82 were incurred during the three
months ended September 30, 2000 compared to $54 during the same period in 1999.
Heartland recorded net occupancy and equipment expenses of $250 and $153 for the
nine months ended 2000 and 1999 respectively. The Bank entered into a 10 year
lease agreement with a non-related party for a parcel of land located in
Bargersville, Indiana and commenced banking activities in a temporary facility
on that site in January 2000. The permanent building was constructed on the land
during the nine months ended September 30, 2000 and was occupied in June. The
temporary facility was closed at that time. The Bank also entered into a 5 year
lease agreement with 2 renewal option periods of 5 years each with a non-related
party for a facility to be used as the fourth banking location. The lease term
began in July 2000 and the office was opened for business in August 2000.
Data processing expense was $125 for the three months ended September 30, 2000
compared to $100 for the three months ended September 30, 1999. Data processing
expense was $327 for the nine months ended September 30, 2000 and $227 for the
same period in 1999. In the fourth quarter of 1997, the Bank entered into a
three-year contract with a third party service provider for core data
processing, with monthly expense partially based on the volume of accounts and
transactions. The increases in data processing expense were primarily due to the
increase in volume of accounts and transactions, data processing costs
associated with the additional banking offices opened in January and August 2000
and additional costs related to the implementation of new loan documentation
software in the first quarter of 2000.
Printing and supplies expense was $34 for the three months ended September 30,
2000 and $20 for the three months ended September 30, 1999. Heartland incurred
printing and supplies expense of $94 for the nine months ended September 30,
2000 compared to $52 for the same period in 1999. The increase is primarily due
to the increased volume of loan and deposit customers and the opening of the two
new banking offices.
Heartland incurred advertising expense of $48 during the three months ended
September 30, 2000 compared to $24 during the three months ended September 30,
1999. Advertising expense for the nine month periods ended September 30, 2000
and 1999 was $113 and $62, respectively. The increases are primarily due to
promotion of the two new banking offices opened in January and August of 2000.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2000
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
Professional fees for the three months ended September 30, 2000 were $38,
compared to $24 for the three months ended September 30, 1999 and $108 for the
nine months ended September 30, 2000 versus $52 for the nine months ended
September 30, 1999. The increase in professional fees is due primarily to the
use of professional consulting firms for internal audit, loan review and
compliance review procedures during 2000.
The remaining expenses of $88 during the three months ended September 30, 2000,
$100 during the three months ended September 30, 1999, $236 during the nine
months ended September 30, 2000 and $205 during the nine months ended September
30, 1999, relate to various other items such as directors' fees, loan related
expenses, postage, insurance and training and were increased primarily due to
the increase in volume of loans and deposits.
CAPITAL RESOURCES
Shareholders' equity totaled $12,584 at September 30, 2000, compared to $11,643
at December 31, 1999. The change is attributable to the total comprehensive
income for the three months ended September 30, 2000. As of September 30, 2000,
1,265,000 shares of common stock were issued and outstanding. Heartland's total
equity to total asset ratio was 7.96% at September 30, 2000 compared to 10.57%
at December 31, 1999. The change was primarily due to the growth in assets,
offset by the total comprehensive income for the nine months ended September 30,
2000. Book value per common share of Heartland was $9.47 at September 30, 2000
compared to $8.77 at December 31, 1999. The change in book value per common
share resulted from the total comprehensive income for the nine months ended
September 30, 2000.
The Bank must meet certain minimum capital requirements mandated by the FDIC and
the DFI. These regulatory agencies require financial institutions to maintain
certain minimum ratios of primary capital to total assets and total capital to
total assets.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management
believes the Bank meets all applicable capital adequacy requirements as of
September 30, 2000 and December 31, 1999.
As of September 30, 2000 and December 31, 1999, the Bank was categorized as
"well capitalized" under the regulatory framework for prompt corrective action.
In addition, a more restrictive capital adequacy requirement currently in place
is from the agreement with the Federal Deposit Insurance Corporation in
conjunction with the approval for deposit insurance, which requires that a
minimum total capital to total assets ratio of 8% be maintained for the first
three years of operation. The Bank's corresponding capital ratio at September
30, 2000 and December 31, 1999 was 8.14% and 10.2%.
During September, 2000, Heartland borrowed $1 million from a commercial bank
lender for the purpose of contributing the borrowed proceeds to the equity
capital of the Bank. Without such borrowing, the Bank's ratio of total capital
to total assets would have been less than 8% at September 30, 2000, in violation
of the Bank's agreement with the FDIC.
--------------------------------------------------------------------------------
(Continued)
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2000
(Dollar amounts in thousands)
--------------------------------------------------------------------------------
Heartland agreed with the FRB at the time of its organization in 1997 not to
incur additional debt without prior FRB approval. The Board of Governors of the
Federal Reserve System approved Heartland's borrowing of this amount plus an
additional $1.5 million (as and when needed) from that bank lender, subject to
the condition that Heartland's parent only debt-to-equity ratio not exceed 30%.
At September 30, 2000, Heartland's parent only debt-to-equity ratio was 7.95%.
In connection with the expiration during the fourth quarter of 2000 of the
commitment of the Bank made to the FDIC to maintain an 8% ratio of total capital
to total assets as described above, the Indiana Department of Financial
Institutions (DFI) has requested that the Bank adopt a formal capital
maintenance policy and has suggested that that policy should not specify a level
of total capital to total assets of less than 7.5%. The Bank has not yet adopted
such a policy, or agreed with the DFI that a 7.5% ratio is an appropriate level
for the Bank.
Heartland is entitled to draw another $1 million through March 31, 2001, from
its commercial bank lender in order to inject additional capital into the Bank
to support its additional growth. Heartland's obligations to the bank lender are
secured by all of the stock of the bank, and bear interest, payable quarterly,
at LIBOR plus 175 basis points. Heartland is obligated to repay principal in 12
equal quarterly installments on the last day of each calendar quarter commencing
March 31, 2001, with the last quarterly installment due December 31, 2003.
LIQUIDITY
Liquidity management for Heartland focuses on the ability to keep funds
available to meet the requirements of withdrawals of depositors and funding of
new loans and investments. The primary source of liquidity for Heartland is the
receipt of new deposits. The Bank has the ability to borrow Federal funds from
other commercial banks on a daily basis. Such borrowings are secured by
investment securities. The Bank also has the ability to borrow from the Federal
Home Loan Bank of Indianapolis with various repayment terms ranging from 1 day
to 15 years. Such borrowings are secured by a "blanket" collateral agreement
covering all available mortgage loans and investment securities in the Bank's
portfolio. Heartland manages liquidity through the use of deposits with other
financial institutions, Federal Funds and investment securities.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
PART II
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Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibit 27: Financial Data Schedule
(b) There were no Form 8-K's filed during the quarter ended
September 30, 2000.
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HEARTLAND BANCSHARES, INC.
FORM 10-QSB
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEARTLAND BANCSHARES, INC.
(Registrant)
/s/ Steve Bechman
Date: 11/14/00 --------------------------
Steve Bechman
President and
Chief Executive Officer
/s/ Jeffery D. Joyce
Date: 11/14/00 --------------------------
Jeffery D. Joyce
Chief Financial Officer
